CRITICS of the new pension fund dispensation are right when they say that it's better not to withdraw any of your retirement money prematurely at all, but they miss an important point: The new system does indeed make it easier to withdraw money, but a much smaller portion than before, in the hope that a larger amount will ultimately be preserved.
The biggest reason for the change is that too many desperate people previously quit their jobs in order to get part of their retirement money (especially during Covid-19). This then solved their immediate crisis but made a dent in their retirement capital which in most cases was not replenished. And the less money someone has the day they are no longer able to work and earn an income, the greater the chance that they will somehow become a burden to the state. Less than 10% (https://www.treasury.gov.za/comm_media/press/2021/2021121401%20Two-pot%20system%20retirement%20proposal%20and%20auto%20enrolment.pdf) of South Africans can currently afford to stop working by the time they reach retirement age.
Therefore, the Treasury's objective with the two-pot system was to find a balance between something that could provide a solution for people in financial need in the short term, but without financial discipline being lost in the longer term...
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PENSION REFORM
Two-pot system might well be a great save
The new pension dispensation makes it easier to get access to your retirement money in a crisis, writes WILLEM KEMPEN, but it is not without risk.
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CRITICS of the new pension fund dispensation are right when they say that it's better not to withdraw any of your retirement money prematurely at all, but they miss an important point: The new system does indeed make it easier to withdraw money, but a much smaller portion than before, in the hope that a larger amount will ultimately be preserved.
The biggest reason for the change is that too many desperate people previously quit their jobs in order to get part of their retirement money (especially during Covid-19). This then solved their immediate crisis but made a dent in their retirement capital which in most cases was not replenished. And the less money someone has the day they are no longer able to work and earn an income, the greater the chance that they will somehow become a burden to the state. Less than 10% (https://www.treasury.gov.za/comm_media/press/2021/2021121401%20Two-pot%20system%20retirement%20proposal%20and%20auto%20enrolment.pdf) of South Africans can currently afford to stop working by the time they reach retirement age.
Therefore, the Treasury's objective with the two-pot system was to find a balance between something that could provide a solution for people in financial need in the short term, but without financial discipline being lost in the longer term...
Only Vrye Weekblad subscribers can read that article here.
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Next articleWillem Kempen
Editor: DailyWillem Kempen is editor of the daily edition of Vrye Weekblad. He is also a former editor of Finweek.